Earnings Release 4Q16 4T16 São Paulo, 22 de fevereiro de 2017 A Natura Cosméticos S.A. (BM&FBOVESPA: NATU3) anuncia hoje os resultados do quarto trimestre de 2016 (4T16). As informações financeiras e operacionais a seguir, exceto onde indicado o contrário, são apresentadas em base consolidada, de acordo com as normas internacionais de relatório financeiro IFRS. RESULTADOS 4T16 São Paulo, February 22, 2017 Natura Cosméticos S.A. (BM&FBOVESPA: NATU3) announces today its results for the fourth quarter of 2016 (4Q16) and the year 2016. Except where stated otherwise, the financial information in this release is presented on a consolidated basis, in accordance with International Financing Reporting Standards (IFRS). EARNINGS RELEASE 4Q16
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1. social and environmental highlights .................................................................................................................................................... 5
2.5. other operating income and expenses ..................................................................................................................................... 11
2.7. net income (loss) ...................................................................................................................................................................................... 12
8. statement of income ..................................................................................................................................................................................... 19
9. statement of cash flows ............................................................................................................................................................................. 20
*Net (Loss) income attributable to owners of the Copany
Note: Growth in Local Currency ex Aesop: 26,4% in 4Q16 vs. 4Q15 and 29,3% in 2016 vs. 2015
345
108
Consolidated EBITDA Change 4Q16(R$ million)
22,8%
14,3%
21,9%
14,3%
24,5%
25,0%
453
637
462 -1 44
131 -34-141
19,4%
24,7%
20,1%9 243
394
104
358
Brazil International Operations
Earnings Release 4Q16
3
EBITDA improved by 4% on 4Q15, with EBITDA margin expanding 0.9 p.p. Our selling, general and
administrative expenses remained stable in relation to 4Q15, despite the higher inflation rate in the year,
which is explained by the ongoing efforts to make our operations more efficient.
International Operations in 4Q16
In Latam, we maintained accelerated gross revenue growth of 29% in local currency, with operating
leverage gains, which were negatively impacted at consolidation level by the appreciation in the Brazilian
real against a basket of ies. Our network (average number of consultants in the period)
expanded 8% compared to 4Q15.
Aesop also maintained accelerated revenue growth in local currency of 29% compared to 4Q15. We
opened 41 new signature stores, and posted same-store sales growth of 12% in the year; the department
stores reached 85 units, up from 73 in December 2015, and posted same-store sales growth in the year of
16%.
EBITDA from the International Operations, including Latam, Aesop and France, stood at R$ 103.6 million
and was 4% lower than in 4Q15 (R$107.7 million). The main impact was from the stronger Brazilian real in
relation to the other currencies, and the fact that in France we had a non-recurring expense of circa R$ 6
million from the termination of the direct selling channel.
Consolidated annual result
Gross revenue advanced 2% from 2015, with a 0.3 p.p. drop in gross margin, mainly reflecting a higher
effective tax rate in Brazil and currency headwinds in Latam. In Brazil, the effective tax rate increased by
2.1 p.p. compared to 2015 and by 4.4 p.p. compared to 2014, which impacted the P&L by R$343.4 million. In
the year, the basket of Latam currencies weakened by 24% against the Brazilian real.
EBITDA fell 10% in 2016 as a result of similar factors that impacted the results in the quarter:
_Expenses in Brazil: improvement due to a
more rigorous budget management which
resulted in greater savings and efficiency;
_New Business Units: positive results from
the initiatives implemented in 2016, such as
our Rede Natura (Natura Network),
entrance in the retail segment and
distribution drugstore chains;
_International Operations: growth in Latin
America and Aesop, not accounting for the
FX effects;
_Effective tax rate: 2.1p.p. increase over 2015;
_ FX: Brazilian real appreciation over the basket of currencies in Latin America, which impacted the COGS
Net income decreased 42%, reflecting the performance in Brazil, the unfavorable foreign exchange
variation and non-cash effects (revaluation of the acquisition of the remaining interest in Aesop and the
mark-to-market adjustment of hedge instruments).
We maintained our efforts to efficiently and rigorously manage CAPEX (R$ 306 million in 2016 vs. R$ 383
million in 2015) and expenses. We optimized working capital investment in our operations, with lower
-34
Consolidated EBITDA Change 2016(R$ million)
18,8%
13,2%
22,4%
10,6%
23,4%
17,0%
1.496
1.800
1.34418,9%
21,2%
17,0%
1.2911.004
1.251
340
245
59 14
264
509
-186-270
Brazil International Operations
Earnings Release 4Q16
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inventory coverage and improvement in cash conversion cycle. As a result, our free cash generation in the
year was R$ 470 million.
Earnings Release 4Q16
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1. social and environmental highlights
Partnerships that generate positive impacts
Natura partners with Google Brasil and with the NGOs Ecam, Kaninde and Imaflora in the New
Technologies and Traditional Communities Project, which seeks to improve the protection and sustainable
use of territories covering more over 20% of the Brazilian Amazon. The goal is to reach, by 2020, 615 people
from 25 communities, cooperatives and associations be trained in improving the management of natural
resources on 1.7 million hectares of the Amazon. The project will last four years and received funding of
around US$3.8 million in November from the U.S. Agency for International Development (USAID), while the
other organizations will make an additional contribution of US$1.2 million.
December marked the launch of the pre-acceleration phase of the Natura Amazon Challenge: Businesses
for the Standing Forest, in partnership with Artemisia. The entrepreneurs of the four winning solutions and
another 13 projects stood out among the 140 initiatives submitted and presented business solutions to
local challenges that are aligned with the UN Sustainable Development Goals (e.g., education, solid waste
treatment, entrepreneurship and production chains in social and biodiversity, etc.). Participants
underwent a high-impact, five-day immersion in the Amazon, with group experiences, training and a visit
to an agro-extractivist community. The event featured the participation of representatives from Pará
state and Guilherme Leal (Co-Chairman of Board of Directors), as well as of important agents in
impact entrepreneurship, such as MOV Investimentos, Impactix, Telefônica and Imazon.
The CN Education program reinforces the investment in our direct selling network in Brazil and was
created based on the results of the HDI-CN index, which measures the human development of Natura
Consultants. It ended the year with strong results: in July to December 2016, 12,000 people already were
studying with the program . In CN Education, the consultants and their family members can
further their studies through on-site and e-learning programs nationwide, receiving discounts or full
scholarships. The incentive is made possible by partnerships between Natura and Universidade Estácio
de Sá (higher education), Prepara Cursos (vocational courses), Wizard by Pearson (language courses) and
the online platforms Khan Academy (various programs) and Geekie Games (preparatory programs for
university admissions exams).
Natura recognized in Brazil and around the world
In the last quarter of 2016 we received national and international accolades that consolidate our strategic
activities in sustainability: Época Empresas Verdes award for the case study Ekos Ucuuba; Exame
Sustainability Guide, in which we once again placed first in the consumer goods category; Thomson
nclusion Index (D&I), in which Natura was the only Brazilian company; Global
Recognition of Good Practices for Employees with Disabilities, an initiative by the São Paulo State
Department for the Rights of Persons with Disabilities. In addition, Natura stock was included once again
in the Corporate Sustainability Index (ISE) of the BM&FBovespa.
Earnings Release 4Q16
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Relative carbon emissions (scopes 1, 2 and 3): For 2016, a decline in carbon emissions efficiency was
expected in view of the business projections. However, we remained at the same level of 2015, a highlight
was the efficiency gains captured in key processes, such as air freight for exports to Latam, higher use of
cabotage for destinations in the North and Northeast, improvements in product delivery to CNs in Brazil
(transfer and last mile), lower electricity consumption at Natura sites, optimization of magazine printing in
Latam and higher use of materials with low environmental impacts for making our products.
Percentage of post-consumer recycled materials: The strong sales performance of fragrances with
post-consumer recycled glass leveraged the result for the year. Another highlight was the use of post-
consumer recycled material in the body category for the relaunch of Ekos.
Percentage of product recyclability: The result was stable in relation to the previous year. The challenge
proposed for 2020 will depend on redesigning certain products in the portfolio that allow for separating
components and on using materials with higher recycling rates.
Eco-efficient packaging: The result was lower than in the previous year, due to the lower share of sales
from items with eco-efficient packaging. In addition to making available refill options and packaging with
a lower environmental impact, such as for the SOU line, we must resume our efforts to encourage
consumers to use refills and expand our use of post-consumer recycled materials to include more items in
our portfolio.
The higher share of
Amazonian inputs in the total volume of inputs was mainly due to the increase in palm oil purchases to
make soap and to the decrease in total spending on raw materials in 2016. The increased use of
Indicator
4 Cumulative amounts since 2011.
5 Refers to the profit before income tax attributed to the Crer Para Ver product line.
3 Eco-efficient packaging is 50% lighter in relation to regular/similar packaging or which has at least 50% in potentially marketable recyclable materials and/or renewable materials, as long as there is no mass increase.
Relative carbon emmissions (escopes 1, 2 e 3) kg CO2/kg prod billed 2,15 3,17 3,17
Other noncurrent assets 23,0 17,6 Deferred income tax and social contribution 23,8 34,1
Property, plant and equipment 1.734,7 1.752,4 Provision for tax, civil and labor risks 93,6 77,9
Intangible assets 784,3 816,5 Other non current liabilities 266,7 170,1
Total noncurrent assets 3.618,7 3.376,3 Total non current liabilities 3.247,3 3.744,3
SHAREHOLDERS' EQUITY
Capital 427,1 427,1
Capital reserves 142,8 134,7
Earnings reserves 666,8 488,8
Treasury shares (37,1) (37,9)
Proposed additional dividend 29,7 123,1
Reserve for acquisition of non-controlling interest 0,0 (79,3)
Goodwill/ Bargain Purchase on capital transactions (92,1) (65,2)
Adjustment of equity evaluation (140,7) 36,8
Total equity attributable to owners of the Company 996,4 1.028,2
Non controlling interests 0,0 49,6
Total shareholders' equity
Total do patrimônio líquido 996,4 1.077,8
TOTAL ASSETS 8.421,6 9.395,0 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 8.421,6 9.395,0
Earnings Release 4Q16
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8. statement of income for the years ended December 31, 2016 and 2015
2016 2015
NET REVENUE 7.912,7 7.899,0
Cost of sales (2.447,0) (2.416,0)
GROSS PROFIT 5.465,7 5.483,0
OPERATING (EXPENSES) INCOME
Selling, Marketing and Logistics expenses (3.110,2) (3.020,5)
Administrative, P&D, IT and Project Expenses (1.327,1) (1.271,5)
Other operating (expenses) income, net 54,4 65,8
INCOME FROM OPERATIONS BEFORE FINANCIAL INCOME (EXPENSES) 1.082,9 1.256,8
Financial income 1.073,3 1.927,2
Financial expenses (1.729,3) (2.308,6)
INCOME BEFORE INCOME TAX AND SOCIAL CONTRIBUTION 426,9 875,4
Income tax and social contribution (118,6) (352,6)
NET INCOME BEFORE NONCONTROLLING 308,2 522,7
Noncontrolling 11,5 9,2
NET INCOME 296,7 513,5
ATTRIBUTABLE TO
Owners of the Company 296,7 513,5
Noncontrolling 11,5 9,2
308,2 522,7
R$ million
Earnings Release 4Q16
20
9. statement of cash flows for the years ended December 31, 2016 and 2015
2016 2015CASH FLOW FROM OPERATING ACTIVITIES
Net income 308,2 522,7Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization 260,8 239,2Provision (reversal ) for losses on transactions with derivative contracts " swap " and "forward " 681,9 (738,0)Provision (reversal ) for tax, civil and labor contingencies 17,0 15,0Monetary restatement of escrow deposits (16,8) (21,2)Income tax and social contribution 118,6 352,6Loss on sale and disposal of fixed and intangible assets (3,4) (18,5)Interest and exchange variation on loans and financing (172,3) 1199,2Exchange variation on other assets and liabilities (59,9) (14,1)Provision (reversal) for losses on property 0,3 6,3Provision (reversal) related to the grant of options to purchase shares 8,8 (2,6)Provision (reversal) for doubtful accounts 19,3 6,4Provision (reversal ) for losses on inventories 31,4 14,3Provision of health care plan and carbon credits 4,6 6,8Net income attributable to non-controlling (11,5) (9,2)Provision for acquisition of non-controlling 58,1 111,3
INCREASE (DECREASE) IN LIABILITIESDomestic and foreign suppliers 12,1 207,9Payroll, profit sharing and related taxes, net 6,9 (9,3)Taxes payable (100,9) (5,1)Participation of non controlling shareholders 0,0 89,3Other payables 5,6 (12,9)Subtotal (76,4) 269,9
R$ million
Earnings Release 4Q16
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CASH GENERATED BY OPERATING ACTIVITIES 1099,2 1584,6
OTHERS CASH FLOWS BY OPERATING ACTIVITIESPayments of income tax and social contribution (131,2) (70,3)Withdrawal (payment) of escrow deposits 7,7 (3,3)Payment of tax, civil and labor contingencies (11,3) 0,0Receivables of derivatives 123,7 323,9Payment of interest on borrowings and financing (309,5) (256,9)
NET CASH GENERATED (USED IN) BY OPERATING ACTIVITIES 778,6 1578,0
CASH FLOW FROM INVESTING ACTIVITIESAcquisition of property, plant and equipment and intangible assets (305,8) (382,9) Receivable from sale of fixed and intangible assets 43,4 77,9Short-term investments (6030,4) (5868,6)Redemption of short-term investments 6014,8 5208,5
NET CASH GENERATED (USED) IN INVESTING ACTIVITIES (278,1) (965,0)
CASH FLOW FROM INVESTING ACTIVITIESRepayments of borrowings and financing - principal (1869,6) (1709,5)Proceeds from borrowings and financing 1265,1 2258,9Acquisition of additional shares of Emeis (248,7) (66,1)Payment of dividends and interest on capital of the prior year (123,1) (685,6)
NET CASH GENERATED (USED) IN FINANCING ACTIVITIES (976,3) (202,3)
Gain arising on translation foreign currency cash and cash equivalents (24,6) 16,9
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (500,4) 427,7Cash and cash equivalents at the beginning of the year/period 1591,8 1164,2Cash and cash equivalents at the end of the year/period 1091,5 1591,8
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS (500,4) 427,7ADDITIONAL STATEMENTS OF CASH FLOWS INFORMATION:
Non cash itens:
Capitalization of financial leasing 40,7 80,9Hedge accounting 1,5 8,6Effects of changes from participation of subsidiaries abroad - - Dividends and interest on interest capital declared and not distributed 118,7 123,1 * The notes are an integral part of these interim financial information. - -
Earnings Release 4Q16
22
10. glossary
_CDI: the overnight rate for interbank deposits.
_Natura Consultant (CN): self-employed resellers who do not have a formal labor relationship with Natura.
_Natura Super Consultant (CNO): self-employed resellers who do not have a formal labor relationship with Natura and support the
Relationship Managers in their activities. They are also called Natura Consultant Advisors.
_Supplier Communities: the communities of people involved in small scale farming and extraction activities in a variety of locations in Brazil,
especially in the Amazon Region, who extract the inputs used in our products from the social and biodiversity. We form production chains with
these communities that are based on fair prices, the sharing of benefits gained from access to the genetic heritage and associated traditional
knowledge and support for local sustainable development projects. This business model has proven effective in generating social, economic
and environmental value for Natura and for the communities.
_GHG: Greenhouse gases.
_Innovation Index: share in the last 12 months of the sale of products launched in the last 24 months.
_Natura Institute: is a nonprofit organization created in 2010 to strengthen and expand our Private Social Investment initiatives. The institute
has enabled us to leverage our efforts and investments in actions that contribute to the quality of public education.
_Target Market: refers to the market share data published by SIPATESP/ABIHPEC. Considers only the segments in which Natura operates.
Excludes diapers, oral hygiene products, hair dyes, nail polish, feminine hygiene products as well as other products.
_Profit Sharing: the share of profit allocated to employees under the profit-sharing program.
_Natura Crer Para Ver Program: special line of non-cosmetic products whose profits are transferred to the Natura Institute, in Brazil, and
invested by Natura in social initiatives in the other countries where we operate. Our consultants promote these sales to benefit society and
do not obtain any gains.
_Sustainable Relations Network: sales model adopted in Natura
Consultant, Entrepreneurial Natura Consultant, Natura Developer 1 and 2, Natura Transformer 1 and 2, Natura Inspirer and Natura Associate.
To rise up through the various stages, consultants must fulfill certain based on sales volume, attracting new consultants and (unlike the models
adopted in other countries) personal development and social and environmental relationships in the community.
_Benefit Sharing: Policy for the Sustainable Use of Biodiversity and Associated Traditional Knowledge, benefits
are shared whenever we perceive various forms of value in the access gained. Therefore, one of the practices that defines the way in which
these resources are divided is to associate payments with the number of raw materials produced from each plant as well as the commercial
success of the products in which these raw materials are used.
_Sipatesp/Abihpec: São Paulo State Perfumery and Toiletries Association / Brazilian Cosmetics, Fragrances and Toiletries Industry
Association.
Earnings Release 4Q16
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EBITDA is not a measure under BR GAAP and does not represent cash flow for the periods presented. EBITDA
should not be considered an alternative to net income as an indicator of operating performance or an alternative
to cash flow as an indicator of liquidity. EBITDA does not have a standardized meaning and the definition of
EBITDA used by Natura may not be comparable with that used by other companies. Although EBITDA does not
provide under
operating performance. Natura also believes that certain investors and financial analysts use EBITDA as an
indicator of performance of its operations and/or its cash flow.
This report contains forward-looking statements. These forward-looking statements are not historical fact, but
Words such as "anticipate", "wish", "expect",
"foresee", "intend", "plan", "predict", "project", "desire" and similar terms identify statements that necessarily involve
known and unknown risks. Known risks include uncertainties that are not limited to the impact of price and
product competitiveness, the acceptance of products b
and those of its competitors, regulatory approval, currency fluctuations, supply and production difficulties and
changes in product sales, among other risks. This report also contains certain pro forma data, which are prepared
by the Company exclusively for informational and reference purposes and as such are unaudited. This report is
updated up to the present date and Natura does not undertake to update it in the event of new information